US aluminium producer Alcoa will take over Australian joint venture partner Alumina in a $3.3bn deal

Alumina has accepted its joint venture partner US aluminium giant Alcoa’s $3.3bn all-scrip offer which will strengthen the company’s position as one of the world’s largest bauxite and alumina producers.

Alumina refinery, the Division of Flynn. Picture: Liam Kidston

Australian bauxite and alumina giant Alumina Limited has signed off on its US joint venture partner Alcoa’s $3.3bn all-scrip bid buyout the company.

The deal consolidates ownership of the Alcoa World Alumina & Chemicals (AWAC) portfolio of assets, which is currently 60 per cent owned by Alcoa and 40 per cent owned by Alumina through a binding Scheme of Arrangement and will strengthen the 136-year-old company’s position as the one of the largest aluminium and bauxite producers in the world.

AWAC contains five bauxite mines, six alumina refineries, an aluminium smelter and a shipping company in Australia, Brazil, Guinea, Saudi Arabia and Spain. Its best assets were the Wagerup and Pinjarra alumina refineries south of Perth. It also has a 55 per cent interest in the troubled Portland aluminium smelter in Victoria

The Board of Alumina, which was founded in 2002 when Western Mining Corporation spun off its aluminium and bauxite assets, recommended that shareholders vote in favour of the transaction, in the absence of a superior proposal.

Alumina chairman Peter Day said the time was right to combine the two companies.

“The combined entity will have a larger and stronger balance sheet, and be better able to fund the current portfolio restructuring actions in AWAC, as well as realising potential growth options in the medium to longer term,” he said.

“Alumina shareholders will participate in a leading global pure play upstream aluminium company, with a low carbon smelting portfolio.”

In the offer Alumina shareholders will get 0.02854 Alcoa shares per Alumina share, a 19.5 per cent premium to the average exchange ratio over the last 12 months.

Alumina shareholders on the record date will own about 31.6 per cent of the combined group, and existing Alcoa shareholders will own about 68.4 per cent.

Alcoa has agreed to establish a foreign exempt listing on the ASX, enabling Alumina shareholders to trade shares of Alcoa common stock via Chess Despositary Interests on the ASX, in the same way they would normally trade ASX-listed Alumina shares.

Alcoa has also agreed to appoint two existing Alumina directors who are Australian residents or citizens to the Alcoa board of directors, on implementation.

Under the terms of the Agreement and at Alumina’s request, Alcoa has agreed to provide short-term liquidity support to Alumina Limited to fund equity calls made by the AWAC joint venture if Alumina Limited’s net debt position exceeds $420m.

Alumina’s largest holder, Allan Gray Australia, has confirmed its support of the buyout and entered into an agreement that gives Alcoa the right to acquire up to 19.9 per cent of Alumina.

State-owned Chinese investment company CITIC Group, which holds 19 per cent of Alumina, has yet to make its intentions known.

Alcoa is based in Pennsylvania in the US and was founded in 1888. It’s president and chief executive William F. Oplinger said entering into the Scheme Implementation Deed to acquire Alumina was a milestone on its path to deliver value for both Alcoa and Alumina shareholders.

“This transaction provides enhanced opportunities for value creation, including strengthening Alcoa’s position as one of the world’s largest bauxite and alumina producers and providing Alumina Limited shareholders the opportunity to participate in a stronger, better-capitalised combined company with upside potential,” he said.

“We look forward to building on Alcoa’s success and continuing to execute our long-term strategy.”

The acquisition will mean Alcoa will significantly increase its ownership in five of the 20 largest bauxite mines and five of the 20 largest alumina refineries globally – excluding China.

Alumina Shares were up 8.1 per cent to $1.27 at 1454 (AEDT).